Accommodate or Achieve Accommodate or Achieve? Integrating Markets and Public Policy in New England Robert Stoddard on behalf of Conservation Law Foundation Raab Associates—PJM Roundtable June 2, 2017

Disconnects between RTO markets and state policy goals RTO markets are narrowly efficient Achieve reliability goals At least cost Disconnect when state policies have: Broader goals Broader cost metrics Many goals have been brought into the markets by pricing SO2, NOX attainment But mixed success with other goals RECs to attain RPS RGGI to attain CO2 goals

Achieving state policies is critical to market health Vicious Circle Virtuous Circle States achieve outside of markets RTO markets weakened Narrow RTO metrics Markets fail to achieve state policies States work mostly within markets Robust RTO markets Robust RTO metrics Markets achieve state policies

NEPOOL IMAPP Process Integrating Markets and Public Policy Year-long stakeholder process Traditional NEPOOL stakeholders Plus state commissions Solutions sorting into two broad categories: Accommodate: moderate impact of state action on market prices Short-term priority Achieve: minimize need for state actions outside of ISO markets Long-term goal

ISO-NE’s “Accommodate” solution: CASPR Competitive Auctions with Subsidized Policy Resources CASPR design balances four objectives: Competitive capacity pricing – minimize price suppressive effect of subsidized policy resources Accommodate entry of subsidized policy resources – minimize investment in duplicative capacity resources Avoid cost shifts – one state shouldn’t bear costs of another’s subsidy Transparent, market-based approach – extend, rather than upend, established markets

Achieving State Policy in Markets Personae Dramatis in constrained policy space States Legislated policy Sovereignty Industry Financeable Sustainable ISO J&R Efficient Design advanced by CLF, NextEra and Brookfield after extensive consultation with state and ISO-NE officials

Goals of Dynamic Clean Energy Market (DCEM) design Provide states new tool for achieving policy goals that: Uses centralized markets Achieves policies at least cost Attracts and retains cost-effective resources Creates visible, competitive prices Fosters broad participation of innovative technologies & resources Meets most, if not all, state requirements for clean energy

DCEM Design Concept DCEM auction procures the clean energy attribute only Clears MWh quantities of Carbon-Linked Incentives to Policy Resources (CLIPR) Products: Base product: generic zero-emitting MWh, new and existing Premium product(s): as required to implement specific state policy States or their agents provide demand bids (price & quantity) Cleared quantities must be reoffered for additional nine years Auction closely precedes base capacity auction Expected clean energy revenues are “in market” for MOPR New CLIPR improves on existing REC products: Consistent definition across region (for “base” product) Link hourly payment to carbon reduction Potential for multi-year contract for new resources

DCEM mimics carbon price for policy resources CLIPR refines traditional REC payment Illustrative REC payments Flat payments in every hour Added incentive to offer negative energy prices, even during periods with excess energy Illustrative CLIPR payments Payments scale in proportion to CO2 emissions of marginal energy units Incentive to produce clean energy when and where it avoids the most CO2 emissions No added incentive to offer at negative prices Marginal CO2 emissions Marginal CO2 emissions REC payments CLIPR payments

Different CLIPR payments enhance opportunities for storage Dynamic Clean Payments Market Energy Price Pay Energy + Dynamic Clean Price When Charging Earn Energy + Dynamic Clean Price When Discharging

DCEM compared to carbon pricing Market-set price to meet quantity targets determined by states Benefits targeted narrowly on policy resources Limited cost impact, but Excludes some cost-effective carbon reduction, e.g. DR & EE No impact on dispatch stack Potential multi-year commitment aids financing Initial interest from state commissions Clear cost causation & cost allocation Price set administratively in a FERC-approved tariff Broad impact on markets achieves carbon reduction most efficiently Higher net consumer cost Benefits flow also to low-emission units, demand-side, behind-the-meter gen Reorders supply stack (with multiple fuels) Risk of price decreases raises financing Qs States unanimously oppose carbon pricing in federal tariff Potential spill-over costs

Next steps in New England for Dynamic Clean Energy Market Technical evaluation by states’ consultant Further development by IMAPP sub-groups Tariff development by Markets Committee